A reduction in the capital stock will cause which of

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Unformatted text preview: no change in output
C) an increase in output per capita
D) increase the capital-labor ratio
E) none of the above 5. Which of the following must occur to sustain economic growth
in the long run?
A) technological progress
B) capital accumulation
C) a higher saving rate
D) all of the above
29 Macroeconomics by Yao Amber LI KEY TERMS
growth
logarithmic scale
standard of living
output per person
purchasing power, purchasing
power parity (PPP)
convergence
Malthusian trap
four tigers
emerging economies aggregate production function
state of technology
constant returns to scale
decreasing returns to capital
decreasing returns to labor
capital accumulation
technological progress
saving rate 30 Sources of Growth Ch11
Saving, Capital Accumulation, and Output (I)
Interactions between Output and Capital
The Implications of Alternative Saving Rates
Getting Sense of Magnitudes
Physical versus Human Capital* 31 SAVING, CAPITAL ACCUMULATION, AND OUTPUT
The effects of the saving rate - the ratio of saving
to GDP – on capital and output per capita are the
topics of this chapter.
An increase in the saving rate would lead to higher
growth for some time, and eventually to a higher
standard of living in the United States.
Even if the saving rate does not permanently affect
the growth rate, it does affect the level of output and
the standard of living. (How? – This chapter.) 32 11-1 INTERACTIONS BETWEEN OUTPUT AND
CAPITAL
At the center of the determination of output in the
long run are two relations between output and capital:
1. The amount of capital determines the amount of
output being produced. 2. The amount of output determines the amount of
saving and, in turn, the amount of capital
accumulated over time. 33 11-1 INTERACTIONS BETWEEN OUTPUT AND
CAPITAL
Figure 11-1 Capital, Output, and Saving/Investment 34 11-1 INTERACTIONS BETWEEN OUTPUT AND
CAPITAL
The Effects of Capital on Output
Under constant returns to scale, we can write the relation
between output and capital per worker as follows: Y
N F K ,1 N 35 of 26 11-1 INTERACTIONS BETWEEN OUTPUT AND
CAPITAL
The Effects of Capital on Output
Since the focus here is on the role of capital accumulation, we make
the following assumptions:
The size of the population, the participation rate,
and the unemployment rate are all constant. N is constant
There is no technological progress. 36 11-1 INTERACTIONS BETWEEN OUTPUT AND
CAPITAL
The Effects of C...
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